5 ms·

What does this have to do with the velocity of money? If the students continue to pay off their debt then the money flows to their creditors, who will use put

by nstj 10y ago

What does this have to do with the velocity of money? If the students continue to pay off their debt then the money flows to their creditors, who will use put it to work in the economy. If the debt is forgiven then it won't go to their creditors and will instead go to those who had student loans who will similarly spend it. Is there another reason that forgiving student loans improves the health of an economy?

ArkyBeagle 10y ago
For a student, they can either spend money on educational debt service or they can buy other things. "Buy other things" presumably increases monetary velocity.
- nstj 10y ago
  But if the investor receives the cash from the student as payment of their loan, they have to do something with that cash too (buy dinner at Per Se, grab a new Vertu phone, lend the money to a startup so that the startup can spend the money on consuming goods and services, etc)
  - ArkyBeagle 10y ago
    Presumably, the Fed will send new money to Treasury for this, which will actually inflate the currency just a wee smidgen ( and in an economy in which the Fed's growth targets go chronically unmet this is no sin - quite the opposite). Otherwise... While there is an element of truth to that, see "the marginal value of a dollar". You "spend" your ten millionth dollar quite differently than you spend your ten thousandth. Some of these guys for whom money is simply a means of keeping score won't change their consumption patterns much no matter what. If you want to increase velocity, the way to do it is cause more cash to be in the hands of broke people.
    - nstj 10y ago
      My bad, that makes a difference (ie: if you're increasing the monetary base, there will indeed be a change in spending - and theoretically it could even result in a lower velocity of money, as the money base might increase proportionally more than the increase in GDP). I didn't realise that Treasury actually held this paper. Still, I'm hesitant to draw the conclusion that giving cash to someone with a high MPC results in a markedly higher amount of consumption/expenditure in the economy, as if alternatively that cash was invested by someone with a high MPS it would be eventually spent anyway. Of course there would be some frictional element to this (money needs to be transferred when invested, etc) but I posit that more is made of this than should be.
      - ArkyBeagle 10y ago
        It's not really clear either way, but I don't see how they can do this without some increase in the monetary base. So I'm somewhat at risk in saying that; I just suspect it has to be true. It'll end up in the deficit just like everything else. As it should. Unlike QE{I,II,III}, this will increase the base. Saving and spending are both morally neutral; it's just that we think it's Good To Be A Rentier, so we (curiously) bias in a moral case for saving. The New Testament of finance :) allows for bankruptcy, to implement a mechanism for forgiveness. Saving is pragmatically good. But we seem to make a moral fetish of it - in fact, if our neighbor spends, spends, spends, we benefit. But Liberal Atomism doth make hypocrites of us all... Ignoring all this, monetary velocity is important and all other things being equal, I'd rather have it than not have it.
zanny 10y ago
The class that lends is also the class whose marginal increases in wealth do not produce goods demand or consumption, it just goes back into lending and / or investment / and or bonds. The best way to grow an economy is to give a dollar to its poorest participant, not its richest, because the poor class will immediately spend it on goods, creating demand, where the richer you are the less of your income goes to consumables that drive production.
- WalterBright 10y ago
  This is another variation on the "rich people hoard money" theory. The reality is that rich people's lending, investment, and bonds all spend that money, too. Nobody borrows money unless they plan to spend it (otherwise it would make no sense). Nobody hoards cash.
  - dpark 10y ago
    That's not really true. If you're truly poor, you'll spend every dollar basically as soon as you get it. If you're moderately wealthy, an extra dollar you receive might pay off a dollar on a loan, or turn into an extra dollar in your savings account, both of which actually reduce the amount of money in circulation. This isn't "hoarding" but has a different effect on the economy than spending.
    - nstj 10y ago
      So if you're wealthy and that dollar goes to pay off the loan - where does it go? The person you're giving it to will either spend it on consumption, or loan it to someone else until (ultimately) it is spent. And if you deposit the dollar into the bank then the bank have to loan it to someone (they need to make money too!) who will then spend it on consumption. It won't reduce the amount of money in circulation[0]. Side note: "How the Economic Machine Works"[1] by Ray Dalio (manager of one of the world's largest hedge funds) is fantastic in describing these concepts in non-academic-economics terms. [0]: https://www.federalreserve.gov/releases/h6/current/ https://www.federalreserve.gov/releases/h6/current/ [1]: http://www.economicprinciples.org/wp-content/uploads/ray_dalio__how_the_economic_machine_works__leveragings_and_deleveragings.pdf http://www.economicprinciples.org/wp-content/uploads/ray_dal...
skybrian 10y ago
The spending isn't necessarily the same. Here's a hypothesis: people who aren't well off will buy stuff they need and therefore spend money more readily than banks that will only spend on fairly safe, profitable investments. There are lots of investors looking for safe investments and this seems more supply-limited than demand-limited (yields are low due to competition). Of course you'd need a real economist to do a study to find out if that's actually true.

by nstj 10y ago

ArkyBeagle 10y ago

For a student, they can either spend money on educational debt service or they can buy other things. "Buy other things" presumably increases monetary velocity.

nstj 10y ago
But if the investor receives the cash from the student as payment of their loan, they have to do something with that cash too (buy dinner at Per Se, grab a new Vertu phone, lend the money to a startup so that the startup can spend the money on consuming goods and services, etc)
- ArkyBeagle 10y ago
  Presumably, the Fed will send new money to Treasury for this, which will actually inflate the currency just a wee smidgen ( and in an economy in which the Fed's growth targets go chronically unmet this is no sin - quite the opposite). Otherwise... While there is an element of truth to that, see "the marginal value of a dollar". You "spend" your ten millionth dollar quite differently than you spend your ten thousandth. Some of these guys for whom money is simply a means of keeping score won't change their consumption patterns much no matter what. If you want to increase velocity, the way to do it is cause more cash to be in the hands of broke people.
  - nstj 10y ago
    My bad, that makes a difference (ie: if you're increasing the monetary base, there will indeed be a change in spending - and theoretically it could even result in a lower velocity of money, as the money base might increase proportionally more than the increase in GDP). I didn't realise that Treasury actually held this paper. Still, I'm hesitant to draw the conclusion that giving cash to someone with a high MPC results in a markedly higher amount of consumption/expenditure in the economy, as if alternatively that cash was invested by someone with a high MPS it would be eventually spent anyway. Of course there would be some frictional element to this (money needs to be transferred when invested, etc) but I posit that more is made of this than should be.
    - ArkyBeagle 10y ago
      It's not really clear either way, but I don't see how they can do this without some increase in the monetary base. So I'm somewhat at risk in saying that; I just suspect it has to be true. It'll end up in the deficit just like everything else. As it should. Unlike QE{I,II,III}, this will increase the base. Saving and spending are both morally neutral; it's just that we think it's Good To Be A Rentier, so we (curiously) bias in a moral case for saving. The New Testament of finance :) allows for bankruptcy, to implement a mechanism for forgiveness. Saving is pragmatically good. But we seem to make a moral fetish of it - in fact, if our neighbor spends, spends, spends, we benefit. But Liberal Atomism doth make hypocrites of us all... Ignoring all this, monetary velocity is important and all other things being equal, I'd rather have it than not have it.

zanny 10y ago

The class that lends is also the class whose marginal increases in wealth do not produce goods demand or consumption, it just goes back into lending and / or investment / and or bonds. The best way to grow an economy is to give a dollar to its poorest participant, not its richest, because the poor class will immediately spend it on goods, creating demand, where the richer you are the less of your income goes to consumables that drive production.

WalterBright 10y ago
This is another variation on the "rich people hoard money" theory. The reality is that rich people's lending, investment, and bonds all spend that money, too. Nobody borrows money unless they plan to spend it (otherwise it would make no sense). Nobody hoards cash.
- dpark 10y ago
  That's not really true. If you're truly poor, you'll spend every dollar basically as soon as you get it. If you're moderately wealthy, an extra dollar you receive might pay off a dollar on a loan, or turn into an extra dollar in your savings account, both of which actually reduce the amount of money in circulation. This isn't "hoarding" but has a different effect on the economy than spending.
  - nstj 10y ago
    So if you're wealthy and that dollar goes to pay off the loan - where does it go? The person you're giving it to will either spend it on consumption, or loan it to someone else until (ultimately) it is spent. And if you deposit the dollar into the bank then the bank have to loan it to someone (they need to make money too!) who will then spend it on consumption. It won't reduce the amount of money in circulation[0]. Side note: "How the Economic Machine Works"[1] by Ray Dalio (manager of one of the world's largest hedge funds) is fantastic in describing these concepts in non-academic-economics terms. [0]: https://www.federalreserve.gov/releases/h6/current/ https://www.federalreserve.gov/releases/h6/current/ [1]: http://www.economicprinciples.org/wp-content/uploads/ray_dalio__how_the_economic_machine_works__leveragings_and_deleveragings.pdf http://www.economicprinciples.org/wp-content/uploads/ray_dal...

skybrian 10y ago

The spending isn't necessarily the same. Here's a hypothesis: people who aren't well off will buy stuff they need and therefore spend money more readily than banks that will only spend on fairly safe, profitable investments. There are lots of investors looking for safe investments and this seems more supply-limited than demand-limited (yields are low due to competition). Of course you'd need a real economist to do a study to find out if that's actually true.